Smart Pricing – an Advanced Approach to Setting Your Prices
Are you selling multiple products through one or multiple channels? If you are (or you have in the past), then you must be aware of the challenges that come with making decisions about prices for all those products. Add on top of that having to check your competitors’ prices and the fact that often prices have to be changed on a daily basis and you’ve got a recipe for a solid headache.
There is a way out of this situation. It lies in letting the carefully made software do all those laborious tasks that are taking up so many resources. In the world of eCommerce, it is paramount that you allocate your resources in the most efficient way possible, and this is where smart pricing comes into play.
In this article, we’ll cover everything you need to know about smart pricing. We’ll go over what it is, how it works, what benefits to expect if you decide to use it, and how to decide if it’s the right approach for you. If you are someone who is selling products online (or thinking about it), then this article is a must-read for you.
Smart Pricing – an elusive and broad concept, a more precise definition
Smart pricing can hardly be categorized as a distinct pricing strategy. It’s better to talk about it in terms of a specific approach to setting your prices. And a powerful one, at that.
What does it consist of? Smart pricing primarily relies on advanced price monitoring, analysis, and adjustment techniques which are all made possible by using cutting-edge web scraping technology.
Another equally important part of the smart pricing process is defining a set of rules that will be used for setting prices on your products.
Let’s go into more detail about these two factors.
A powerful web scraper, such as Price2Spy, doesn’t come only with price monitoring functionality. Equally important are the functions of extracting additional product data, matching your own products against your competitors’ products, and repricing itself.
All of this is important because you need accurate and up-to-date virtual data room providers before you act. Data is required because smart pricing is essentially a reactive approach. After certain market changes occur, you decide how you’ll act about them.
Defining your own repricing rules/criteria
Now, we’re going to talk about smart in smart pricing. It boils down to the rules/criteria you set for repricing opportunities. Some of the common criteria that we often encounter are:
- Your own product price,
- Competitors’ product prices,
- Products’ stock availability,
- Products’ purchase price,
- Desired profit margin,
- Targeted price (MAP/RRP),
- Desired pricing position – do you want to be the cheapest or the most expensive seller on the market, or are your goals to be cheaper/more expensive than a certain competitor.
Besides these, you can set your own custom rules, that suit the needs of your business the best.
Either way, once your criteria have been met, two things can happen. You can either get a suggestion for the repricing or the repricing can be done automatically, should you choose so.
Let’s now see how smart pricing works in action!
Types of Smart Pricing
There are two basic types of Smart Pricing – Smart Raise and Smart Drop. They work in conjunction with one another and ensure your prices are at the highest competitive level possible. Let’s see what they’re all about.
This method is usually used when your products are already priced the lowest on the market and there’s enough room to raise your prices.
The decision about how close/far from the next cheapest competitor you want to be is in your hands. Some extremely competitive industries don’t allow much room for maneuvering while others do.
When talking about lowering your prices the two main parameters are your purchase price (from a manufacturer or a distributor) and your desired profit margin.
In the usual market conditions (meaning stable supply and demand) overpriced products usually mean fewer sales. Implementing smart pricing means that you’ll be able to remain within your desired profit margin while not stocking overpriced products that can’t drive sales.
Benefits of using Smart Pricing
You must be wondering what benefits can you expect from smart pricing. That’s exactly what we’re going to cover next. We’ll point out the five most significant ones.
Maximized profit margins
As we’ve already mentioned, sometimes your prices are lower than they need to be. In most cases, sellers are not aware of this. This means that you’re undercutting yourself and not earning as much profit as you could be.
With properly set up repricing rules this does not happen. If you decide to do so, you’ll be able to set the highest possible price while still being cheaper than the rest of your competitors.
An opposite case to the previous one. Sellers are prone to pricing their products too optimistically. This means that their prices are way too high and that they are not generating enough sales, hurting their own bottom line.
In some cases, this can be justified, for example when applying a premium pricing strategy, but other than that it’s mostly harmful. Smart pricing can help you with this if you input the price at which you purchased the product from a distributor/manufacturer and your desired profit margin.
Smart pricing can help you save resources by doing many analytical tasks instead of you. If you want to monitor prices and other product data on your own (and track changes in those parameters) you’ll need a hefty investment.
With an advanced eCommerce tool, like Price2Spy, all of these tasks can be done by the software, and it’s only a couple of clicks away from you.
Furthermore, besides saving time and money on analytical tasks, you can also save time and money by automating the repricing process. You’ll have to decide if this is suitable for your business, but a bit more on this later on.
Automate the process – retain control
Believe it or not, this is not a contradictory statement. Let’s clear things up. There are essentially two layers of control.
First of all, you retain control of the pricing process by setting your own rules based on relevant parameters. This way you ensure that nothing unexpected happens.
The second thing you can do is to decide against automating the repricing process. If you do this, you’ll get repricing suggestions based on which you can act, meaning you can approve or decline them.
With everything previously mentioned in mind, it’s clear how you gain an advantage over a competitor who isn’t implementing smart pricing.
One of the most attractive features of smart pricing is its adjustability. To be more specific, this means that you can decide which features you want to use and which ones you don’t.
Smart Pricing exceptions
You may find it odd, but there are some cases where Smart Pricing may not be the best option for your business. One such case could be that you have very few SKUs that you’re monitoring and that you’re fine with setting your prices manually.
Another case could be that you already have in-house experts who are familiar with the whole market and its logic, so they do the repricing for you.
Also, it could be a combination of these two cases.
You may ask, what is our suggestion, having all that’s been written in this article in mind? Precise suggestions go on a case-by-case basis, but we can safely say that a hybrid/middle way approach is a good starting point.
What do we mean by this?
First of all, if you have many SKUs, you should identify the most important ones. Roughly speaking not more than 100. Repricing of those items would not be automated. Instead what will happen is that Price2Spy will provide you with price change suggestions (based on your set of rules) and it’s up to you whether you’ll approve or reject them.
For other SKUs, you can go with smart pricing in its full functionality – our Repricing Module will take care of everything.
When you come across a term as broad as smart pricing it’s difficult to grasp it as a whole immediately. It gets even harder when you realize there are so many different definitions floating around.
We hope that, with this article, we’ve cleared up the confusion around smart pricing. You should now feel comfortable when making a decision on whether it’s a good approach for you or not.
There’s no better way to make this decision than to test this approach for free. Here at Price2Spy we offer a free 30-day trial with no strings attached!
With the free trial you’ll be able to check out our whole repricing module and all the other features Price2Spy offers. There’s no reason to hesitate!